Fears of rising interest rates collided with worries about artificial-intelligence spending on Wall Street Friday, bringing an abrupt and painful end to weeks of gains and sending the Nasdaq composite to its worst day in more than a year.

Shares of the chip-making giants that have powered the market's climb to records tumbled, weighed down by new concerns that trillions of dollars invested in AI technology won't yield the expected blockbuster returns. The losses intensified after a robust jobs report raised new worries that the Federal Reserve may need to raise interest rates later this year to fight inflation.

Stocks, bonds, oil, gold and bitcoin all tumbled. The tech-heavy Nasdaq fell 4.2% -- more than 1,100 points -- in its worst decline since the tariff rout of April 2025. Micron Technology, Intel, Super Micro Computer and Sandisk lost more than 11%. Cisco and Nvidia both dropped more than 6%. Equipment maker Caterpillar, lately an AI play because of its power and energy business, fell 3.8%.

Falling bond prices drove up Treasury yields. The yield on 2-year Treasurys, which tend to rise when investors expect higher short-term rates from the Fed, surged to 4.16%, its highest close in 16 months. The prospect of higher borrowing costs hit companies big and small, with the Russell 2000 index of smaller companies losing 3.5%.

The declines combined to erase more than $1.2 trillion in market value from the PHLX Semiconductor Index, according to Dow Jones Market Data. Many of the same tech companies had powered the indexes to records this year, a grim reminder of the market's dependence on a thinning group of top performers.

"When things go well, they go really well, but when things go badly, they can go really badly," said Tom Hancock, a portfolio manager at Boston-based GMO.

Enthusiasm for the AI future had previously overwhelmed concerns that might have once stopped past rallies in its tracks. War in the Middle East, the ensuing energy shock and even a steady drumbeat of higher inflation have at times offered some resistance. But selloffs have proved fleeting, with the S&P 500 now on pace for a fourth straight year of blockbuster gains.

The week began with news that Alphabet, Google's parent company, planned to sell $80 billion in stock to help finance its AI build-out. And many investors have been bracing for months for the market debut of SpaceX, Elon Musk's rocketry and AI company. The offering, which is expected to add SpaceX to the list of companies valued at more than $1 trillion, is slated for Friday.

But so far this year, the chip makers have led the market to new heights. Some of those stocks, including Micron, have doubled or even tripled in value.

As the year wore on, though, fewer stocks have kept pace with the index's overall gains.

Some 43% of companies in the S&P 500 rose in May, down from 64% in January, according to Dow Jones Market Data. And just 25% of stocks outperformed the benchmark index last month, compared with 59% at the start of 2026.

Many investors view a narrowing array of winners as a flashing warning sign, believing that market breadth, or how many stocks participate in a rally, is an indicator of its longevity. They worry it won't take much to knock the market's climb off-course.

"Ideally, you would want broader participation," said Eric Teal, chief investment officer at First Horizon Wealth Management.

While the S&P 500 rose more than 11% this year through May, its gains were just 2.4% when excluding AI-related stocks, some of which have doubled or even tripled in value in 2026, according to Kristina Hooper, chief market strategist at Man Group.

"I don't think that the risks are fully appreciated," said Hooper. "There's a lot that could go wrong."

A slew of challenges lie ahead. Investors may have shed tech holdings this week ahead of SpaceX's planned IPO, according to analysts at Jefferies.

New clashes between Washington and Tehran have sparked sharp bouts of volatility in oil prices and the bond market. Analysts worry that higher energy prices could push up inflation, and potentially lead the Fed to raise rates this year. And while strong earnings have been a key pillar for the stock rally, some fret that a prolonged war could erode future results.

Teal says that his firm has increased its exposure to sectors such as financials, healthcare and consumer staples in recent months, in part due to concerns that the market's gains are overly concentrated in AI companies.

Some worry that investors have been overly bullish. The ratio of put options relative to call options tied to stocks recently hit their lowest level outside of the 2021 meme stock frenzy and the tech bubble in the late-1990s, according to Cboe Global Markets data. Lower demands for puts compared to calls usually signals bullishness among traders. Put options give the right to sell shares at a set price, while calls confer the right to buy.

The stock fervor has helped drive shares to historically expensive levels. Stocks in the S&P 500 recently traded at 21 times expected earnings over the next 12 months, above their 10-year average of 19 times, according to FactSet.

To be sure, stocks have recovered quickly from an array of challenges in recent years, from the launch of China's DeepSeek AI model to tariff whiplash to jitters in private credit. The U.S. economy remains on solid footing. The labor market added 172,000 jobs in May, according to the Labor Department, blowing past the 80,000 jobs that analysts polled by The Wall Street Journal had projected.

And while the lion's share of earnings growth is from big tech companies, they aren't the only ones posting solid results. Around 85% of companies in the S&P 500 that have reported results beat first-quarter earnings expectations, above the 10-year average of 76%, according to FactSet. That is on pace to be the highest percentage since 2021.

Some analysts expect that trend to continue.

"Once we move past the geopolitical shock, I think that's going to be the catalyst enabling that broadening to resume," said Angelo Kourkafas, senior global investment strategist at Edward Jones.